Infrastructure investment and marginal spending behaviour of households

Abstract

To shed light on the debate over the effect of infrastructure investment on household consumption, this paper uses rural and urban household consumption data from the Chinese Household Income Project (CHIP) to analyse how infrastructure development affects the marginal spending behaviour of households. We find that although infrastructure stock crowds in total consumption, the effects of infrastructure development on sub-categories of consumption differ considerably between the rural sample and the urban sample. Specifically, infrastructure development promotes urban households' spending on infrastructure-based goods, and generates more spillover effects on rural households as indicated by the marginal consumption pattern shifting from necessities to more luxurious goods. Heterogeneity analyses show that the effect of infrastructure development is stronger in households with higher income and with a younger head.